Gratuity Calculator - India
Calculate gratuity payout in India based on years of service and last drawn salary. Enter values for instant results with step-by-step formulas.
Reviewed for accuracy by Daniel Agrici, Founder & Lead Developer
Gratuity Calculator - India
Calculator
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Formula: Gratuity = (Basic + DA) x 15 x Years of Service / 26
Worked example — Gratuity: Rs 3,49,038 | Fully Tax-Exempt | 6.3 months of salary
Formula
Gratuity = (Basic + DA) x 15 x Years of Service / 26
For employees covered under the Payment of Gratuity Act 1972, gratuity equals the last drawn basic salary plus dearness allowance, multiplied by 15 days wages per year of service, divided by 26 working days per month. Non-covered employees use 30 as the divisor.
Worked Examples
Example 1: 10-Year Service Gratuity (Covered Employee)
Problem:Calculate gratuity for an employee covered under the Act with basic salary Rs 50,000, DA Rs 5,000, and 10 years 6 months of service.
Solution:Basic + DA = Rs 50,000 + Rs 5,000 = Rs 55,000 Years (rounded): 10 years 6 months -> 11 years (6+ months rounds up) Gratuity = (55,000 x 15 x 11) / 26 = (9,075,000) / 26 = Rs 3,49,038 Tax-exempt: Full amount (under Rs 20 lakh limit)
Result:Gratuity: Rs 3,49,038 | Fully Tax-Exempt | 6.3 months of salary
Example 2: 25-Year Service Senior Employee
Problem:Calculate gratuity for an employee with basic Rs 1,00,000, DA Rs 15,000, and 25 years 3 months of service under the Act.
Solution:Basic + DA = Rs 1,00,000 + Rs 15,000 = Rs 1,15,000 Years: 25 (3 months < 6, no rounding) Gratuity = (1,15,000 x 15 x 25) / 26 = (43,125,000) / 26 = Rs 16,58,654 Tax-exempt: Full amount (under Rs 20 lakh limit)
Result:Gratuity: Rs 16,58,654 | Fully Tax-Exempt | 14.4 months of salary
Frequently Asked Questions
What is gratuity in India and who is eligible to receive it?
Gratuity is a lump-sum payment made by an employer to an employee as a token of appreciation for services rendered over a period of time, governed by the Payment of Gratuity Act of 1972 in India. An employee becomes eligible for gratuity after completing a minimum of 5 continuous years of service with the same employer. The Act applies to establishments with 10 or more employees including factories, mines, oilfields, plantations, ports, railways, and shops. The five-year requirement is relaxed in cases of death or disability, where gratuity is payable regardless of the length of service. Government employees are also entitled to gratuity under separate rules that generally follow similar principles but may have different calculation methods.
How is gratuity calculated for employees covered under the Payment of Gratuity Act?
For employees covered under the Payment of Gratuity Act, the formula is: Gratuity = (Last Drawn Salary x 15 x Years of Service) / 26. Here, Last Drawn Salary means the basic salary plus dearness allowance last drawn by the employee. The number 15 represents 15 days of wages for each completed year of service. The divisor 26 represents the working days in a month, excluding four Sundays. For employees not covered by the Act, such as those in organizations with fewer than 10 employees, the formula uses 30 as the divisor instead of 26, resulting in a slightly lower gratuity amount. Years of service are rounded up if the employee has served more than 6 months in the final year.
What is the maximum tax-exempt gratuity amount in India?
The maximum tax-exempt gratuity limit in India is 20 lakh rupees as per the current income tax rules. Any gratuity amount exceeding this threshold is added to the employee's taxable income for the year in which it is received. For government employees, the entire gratuity amount is tax-exempt with no upper limit. For private sector employees covered under the Gratuity Act, the least of three amounts is exempt from tax: the actual gratuity received, the statutory limit of 20 lakh rupees, or 15 days salary multiplied by years of completed service with salary divided by 26. This limit was increased from 10 lakh to 20 lakh rupees effective March 2019 through a government notification.
Can an employer forfeit or reduce an employee's gratuity in India?
Under the Payment of Gratuity Act, an employer can forfeit the gratuity of an employee partially or wholly only under specific circumstances defined by law. If an employee's services are terminated for any act of willful omission or negligence causing damage, loss, or destruction to the employer's property, the gratuity can be forfeited to the extent of the damage or loss caused. If an employee is terminated for riotous or disorderly conduct or any act of violence, or for committing an offense involving moral turpitude during the course of employment, the entire gratuity can be forfeited. The employer cannot withhold gratuity for ordinary resignation, retirement, or voluntary separation. Courts have generally interpreted forfeiture provisions strictly and required employers to prove misconduct.
How does the six-month rounding rule work for gratuity calculation?
The six-month rounding rule is a critical aspect of gratuity calculation that can significantly affect the final amount. Under the Payment of Gratuity Act, if an employee has completed more than 6 months of service in the final year, the total service period is rounded up to the next complete year. For example, if an employee has worked for 9 years and 7 months, the calculation uses 10 years as the service period. However, if the employee has worked 9 years and 5 months, the calculation uses only 9 years. This rounding can make a substantial difference in the gratuity payout, often amounting to one additional half-month of salary for each year of the basic-plus-DA calculation component. Employees approaching the six-month mark should be aware of this rule when planning their exit timing.
Is gratuity taxable in India?
For government employees, gratuity is fully exempt from income tax with no upper limit. For private sector employees covered under the Payment of Gratuity Act, the least of three amounts is exempt: actual gratuity received, 20 lakh rupees (the current statutory cap), or 15 days salary multiplied by completed years of service with salary divided by 26. Any amount exceeding the exempt portion is added to taxable income for that financial year and taxed at the applicable slab rate.
What is the difference between gratuity for Act-covered and non-Act employees?
For employees covered under the Payment of Gratuity Act, the formula uses 26 working days in a month: Gratuity = (Salary x 15 x Years) / 26. For employees not covered by the Act, the formula uses 30 days: Gratuity = (Salary x 15 x Years) / 30. This means Act-covered employees receive slightly higher gratuity. Additionally, Act-covered employees have a legal right to gratuity after 5 years, while non-Act employees depend on their employment contract terms.
Does dearness allowance affect gratuity calculation?
Yes, dearness allowance (DA) is included in the salary for gratuity calculation. The last drawn salary means basic pay plus dearness allowance. This is significant because DA often constitutes 30 to 50 percent of an employee's basic pay, substantially increasing the gratuity amount. Other allowances like HRA, conveyance, or special allowances are not included in the gratuity calculation.
Can an employer refuse to pay gratuity in India?
An employer covered under the Payment of Gratuity Act cannot refuse to pay gratuity to an eligible employee except in specific forfeiture scenarios like proven misconduct causing property damage or criminal offence involving moral turpitude. If an employer delays or denies payment, the employee can file a complaint with the Controlling Authority under the Act. Interest is payable on delayed gratuity. The employee can also approach the labour court if the controlling authority's decision is unsatisfactory.
How is gratuity calculated for contract or fixed-term employees in India?
Contract and fixed-term employees are also eligible for gratuity if they complete 5 years of continuous service with the same employer. The 2018 amendment to the Payment of Gratuity Act extended coverage to fixed-term employees. The calculation formula remains the same: last drawn salary multiplied by 15 divided by 26 multiplied by completed years of service. Even if the contract is renewed multiple times with the same employer, the total service period counts as continuous.
References
Reviewed for accuracy by Daniel Agrici, Founder & Lead Developer · Editorial policy
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